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Components of Financial Management

Fund accounting, Income types, aspects of a grant

Fund Accounting

NGOs follow Fund based Accounting for managing grants

  • Fund accounting is an accounting system for recording resources (fund) where its use has been limited by the donor.

  • This accounting system emphasises accountability/productively over profitability which is the accounting basis for for profits

  • A separate budget is established for each fund.

  • Fund accounting utilises good internal control and reporting systems

Income of IPs-Types of Funds

Income of charitable institutions being headless is reported under following categories:

  • Aggregate Income from property held in trust (Schedule AI)

  • Voluntary contribution (Schedule VC)

  • Capital Gains

Types of funds (specified by ICAI):

  • Unrestricted funds: Funds received with no specific restrictions categorised as:

    • Corpus-non-refundable, non reducible, reinvestment obligation

    • Designated/earmarked funds-appropriated and set aside for specific purpose/future, self imposed but not legally binding

    • General funds-neither designated nor restricted and also surplus/deficit transferred from I&E

  • Restricted funds:

    • Project/program grants-Project Grants to be utilised as per terms and conditions of award, restriction on both utilisation and income earned from such funds. Principle of fund based accounting

    • Endowment funds: fund amount cannot be utilised, only income utilised for general/specific purpose as per terms.

Format of financial statements as per ICAI

––Insert Forms––

Accounting treatment for grants to NGOs

Grant is trust money.

3 options followed as per convention:

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